Home / Futures Blog / High wheat prices and ‘rotting’ Indian stocks fuel political firestorm

High wheat prices and ‘rotting’ Indian stocks fuel political firestorm

July 27, 2010 by Daniels Trading

A new report from the Financial Times illustrates the complex situations that arise at the nexus of political and economic realities. As wheat prices rise – on the Comex in New York, wheat futures contracts for September delivery were up 21 cents to $6.16 per bushel – India’s government holds massive stockpiles of wheat and rice that are at risk of rotting away as monsoon rain begins to fall.

Around 10 million tons of wheat could be afflicted with rot, or a sixth of the country’s total stockpiles, reports the FT.

Meanwhile, the global surge in food prices over the past two years – driven by increasing consumer demand along with more grain going into bioethanol and animal feed – has put even more pressure on poor families.

The FT suggested that if India dumps the wheat on the market, it could slow or even reverse a recent surge in the price, which reflects concerns over severe drought in Russia and heavy Canadian rains.

If the Indian government dithers, though, the wheat could be lost, forcing it to go to international markets and causing a spike in wheat futures.

India’s Supreme Court took the unusual step of issuing a direct statement, saying “In a country where people are starving, wastage of even a single grain is a crime,” and urging the government to distribute the stockpiles.

These effects have pushed wheat to its highest level in over a year. The Russian situation is particularly dire – some fear it could make the agricultural giant in a net importer of wheat this year. Temperatures in Russia’s wheat-producing provinces have regularly soared over 100 degrees this summer, parching the earth and the crops.

If temperatures do not soon subside, a vast portion of Russia’s wheat crop could be permanently lost, further compounding the misery for poor people vulnerable to fluctuations in the price of essential food commodities.

The fears infecting the wheat market are being felt in other areas as well – corn and beans have both risen in price, on speculation that farmers might switch to these feeds if wheat gets too expensive. In general, demand for wheat as animal feed has been increasing, as developing nations like China become more affluent and consume greater quantities of meat and fish.

Risk Disclosure

This material is conveyed as a solicitation for entering into a derivatives transaction.

This material has been prepared by a Daniels Trading broker who provides research market commentary and trade recommendations as part of his or her solicitation for accounts and solicitation for trades; however, Daniels Trading does not maintain a research department as defined in CFTC Rule 1.71. Daniels Trading, its principals, brokers and employees may trade in derivatives for their own accounts or for the accounts of others. Due to various factors (such as risk tolerance, margin requirements, trading objectives, short term vs. long term strategies, technical vs. fundamental market analysis, and other factors) such trading may result in the initiation or liquidation of positions that are different from or contrary to the opinions and recommendations contained therein.

Past performance is not necessarily indicative of future performance. The risk of loss in trading futures contracts or commodity options can be substantial, and therefore investors should understand the risks involved in taking leveraged positions and must assume responsibility for the risks associated with such investments and for their results.

Trade recommendations and profit/loss calculations may not include commissions and fees. Please consult your broker for details based on your trading arrangement and commission setup.

You should carefully consider whether such trading is suitable for you in light of your circumstances and financial resources. You should read the "risk disclosure" webpage accessed at www.DanielsTrading.com at the bottom of the homepage. Daniels Trading is not affiliated with nor does it endorse any third-party trading system, newsletter or other similar service. Daniels Trading does not guarantee or verify any performance claims made by such systems or service.

About Daniels Trading

Daniels Trading is an independent futures brokerage firm located in the heart of Chicago’s financial district. Established by renowned commodity trader Andy Daniels in 1995, Daniels Trading is built on a culture of trust committed to the firm’s mission of Independence, Objectivity and Reliability.

Connect with Us

This material is conveyed as a solicitation for entering into a derivatives transaction.

This material has been prepared by a Daniels Trading broker who provides research market commentary and trade recommendations as part of his or her solicitation for accounts and solicitation for trades; however, Daniels Trading does not maintain a research department as defined in CFTC Rule 1.71. Daniels Trading, its principals, brokers and employees may trade in derivatives for their own accounts or for the accounts of others. Due to various factors (such as risk tolerance, margin requirements, trading objectives, short term vs. long term strategies, technical vs. fundamental market analysis, and other factors) such trading may result in the initiation or liquidation of positions that are different from or contrary to the opinions and recommendations contained therein.

Past performance is not necessarily indicative of future performance. The risk of loss in trading futures contracts or commodity options can be substantial, and therefore investors should understand the risks involved in taking leveraged positions and must assume responsibility for the risks associated with such investments and for their results.

Trade recommendations and profit/loss calculations may not include commissions and fees. Please consult your broker for details based on your trading arrangement and commission setup.

You should carefully consider whether such trading is suitable for you in light of your circumstances and financial resources. You should read the "risk disclosure" webpage accessed at www.DanielsTrading.com at the bottom of the homepage. Daniels Trading is not affiliated with nor does it endorse any third-party trading system, newsletter or other similar service. Daniels Trading does not guarantee or verify any performance claims made by such systems or service.